DEVELOPMENT-CANADA: SeLling Myth of Powerlessness In Global Economy

By Paul Weinberg Reprint | | Print |

Paul Weinberg

TORONTO, Apr 18 1998 (IPS) - Linda McQuaig manages to write bestselling books in Canada on what most people would consider extremely arcane and boring – business and economics.

What the author is saying seems to be striking a chord as the positive newspaper reviews pour in and she is interviewed on a variety of loca radio an TV shows on her just published book, “The Cult of Impotence: Selling the Myth of Powerlessness in the Global Economy.”

McQuaig is challenging the widely held opinions of decision- makers of all political stripes that the natural laws of the market place must prevail and governments cannot increase their expenditures on programs to eliminate poverty and unemployment.

She notes how increased social spending is an anathema to international investors – largely the large financial institutions – because it might cause inflation (rising wages and prices) which lowers the value of their assets stored in the form of bonds. Nations have felt increased pressure on pleasing the world’s moneymen, since the death in the early 70s of the Bretton Woods accords, which then unleashed the movement of uncontrolled speculative capital across national borders.

Experts like Ian Angell, professor of information systems at the London School of Economics suggests that governments resign themselves to a combination of fiscal discipline and massive amounts of unemployment in an era of technological change.

But McQuaig’s point is that the governments, at the mercy of fleeing capital, which can play havoc with their currencies and economies, are capable of limiting the power of the financial markets, but they choose not t. She says that the proposal by U.S. econmist James Tobin, to hinder short-term decisions by investors to move money from one country to another on a whim with a tax, has never been tried.

Also, there was a period of about 30 years after World War II when governments thought it was prudent to apply some of the lessons of the Great Depression of the 1930s with increased public spending that kept people working and consuming.

British economist John Maynard Keynes had drawn up proposals for a worldwide regime of stable world currencies supported by capital controls. But Bretton Woods was filled with enough loopholes that it was eventually undermined entirely by the financial institutions when the 70’s rolled around and an unforeseen oil crisis had ensued, writes McQuaig.

Her book details efforts by isolated individuals in the Canadian department of finance and the federal government who have opposed the prevailing economics orthodoxy, but were unsuccessful in altering the policy direction and then had to leave their jobs.

Canada’s finance department and its central bank hold views that go further than even the U.S. Federal Reserve, which has permitted a small amount of inflation in the American economy to maintain a low unemployment rate.

Heavily influenced by the “natural level of unemployment” ideas of U.S. economist Milton Friedman, the Bank of Canada has followed a zero inflation, high interest rate regime. This has been blamed for rising business bankruptcies and a persistent unemployment rate of 8 per cent during the 90s by dissenting Montreal economist Pierre ortin.

Concerns about Canada’s fiscal situation in both the population and the international financial markets caused the Liberals led by Jean Chretien on taking office in 1993 to put aside their election promise of a spending program to create jobs, and instead embark upon slashing government social programs by about 30 percent.

The results have been mixed, states McQuaig. The country has eliminated its deficit; and yet government involvement in the economy hasben reduced to the level of the 1940s, unemployment is stuck around eight per cent and poveryamong the most vulnerable groups, women, youth and immigrants, is up. She says a policy of economic growth spurred by lower interest rates would have cut the deficit without the same damage being done to the Canadian society.

Chretien’s Liberals were re-elected in the early summer of 1997 with a smaller majority in the House of Commons on a platform to spend of half of the federal government’s budget surplus on social programs. McQuaig says the actual level of government spending would have been minimal. But the Canadian finance minister, Paul Martin, has delayed going ahead with the promises, stating his focus would be on “staying the course,” by starting to scale down Canada’s long term debt.

McQuaig writes about the paradox that the Liberals are still extremely popular, even though 70 per cent of Canadians have told the Environics polling firm that government programs focused on job creation, health care and fighting childpoverty are higher priorities than budget-cutting. A variety of factors for Liberals’ high ratings in the opinion polls have been listed including an on- going national unity crisis and a weak and divided opposition in the House of Commons.

But McQuaig suggests that people’s expectations of their politicians are extremely low, which she blames on their caving into pressures from the financial elates:

“No wonder people are disaffected with governments. It’s not that governments are powerful; it’s that they have ceased to use their power to defend the public interest.”